Fintech is a portmanteau of money-related innovations that depicts a rising monetary administration part in the 21st century. Originally, the term applied to technology and relates to the back-end of established consumer and trade financial institutions. SALEEM UDDIN FAISAL delves further.
It’s very important to integrate the current Islamic finance system with fintech solutions in order to address the requirements of a US$2.1 trillion market. Fintech can get yet another US$1 trillion for Islamic finance with the use of technology and reach the areas where Islamic finance has limited or no access.
The main objective of fintech is to bring down the cost of intermediaries and return the same savings to end users. Keeping an eye on the same objectives, Islamic finance can also provide even more robust and cost-effective solutions to customers by using fintech. An example is blockchain which is an open ledger system with no central governing authority and has very low chances of getting hacked due to data encryption and the decentralized topology. Security isn’t a part of the system, it is the system. Blockchain is also going beyond finance. A blockchain is a public ledger of all bitcoin (cryptocurrency) transactions that have ever been executed. It is constantly growing as ‘completed’ blocks are added to it with a new set of recordings. The blocks are added to the blockchain in a linear, chronological order.
By permitting computerized data to be appropriated yet not duplicated, blockchain innovation has provided the foundation for another kind of web. Initially formulated for the digital money bitcoin, the tech community is presently finding other potential uses for such a brilliant innovation.
Bitcoin has been called ‘digital gold’, and for good reasons; to date, the aggregate estimation of such cash is near US$14 billion. Blockchain can make different sorts of digital values. Like the internet (or your vehicle), you don’t have to know how the blockchain attempts to utilize it. In any case, having an essential information of this new innovation demonstrates why it’s viewed as progressive and revolutionary.
Blockchain innovation resembles the internet in that it has an inherent robustness. By putting away blocks of data that are indistinguishable over its system, therefore blockchain cannot:
- be controlled by any single entity, and
- has no single point of failure.
Blockchain is considerably more secure than the current customary innovation of centralized databases of companies. For example, banks, traders, stock exchanges and so on are more vulnerable to cyberattacks, notwithstanding securing them since a hacker who breaks in can control the whole system.
Bitcoin was invented in 2008 and since then, the bitcoin blockchain has worked without critical interruption. To date, any issues connected with bitcoin have been because of mismanagement, if any. As it were, these issues originate from bad intentions and human mistakes, not blemishes in the fundamental ideas. The innovation itself was not intended to be abused and it absolutely depends on how it will be utilized.
The internet itself has ended up being sturdy for just about 30 years. It has a reputation that looks promising for blockchain innovation as it keeps on being developed.
The blockchain network lives in a condition of accord, one that naturally checks in with itself like every 10 minutes. A sort of self-reviewing and auditing environment of digital value, the system accommodates each exchange that occurs in a 10-minute interim. Every gathering of these exchanges is alluded to as a ‘block’. Two vital properties result from this:
- Transparency – information is inserted inside the system all in all; by definition it is open to the public.
- It can’t be undermined – modifying any unit of data on the blockchain would mean utilizing an enormous measure of figuring energy to supersede the whole system.
By outline, the blockchain is a decentralized technology. Anything that happens on it is a function of the network as a whole. Some imperative ramifications stem from this. By making another approach to check exchanges, parts of a customary business could get to be distinctly superfluous. Stock exchange transactions turn out to be practically synchronous on the blockchain, for example – or it could be a sort of record-keeping, similar to a land registry, completely open where decentralization is now a reality.
A worldwide system of computers uses blockchain innovation to mutually deal with the database that records bitcoin transactions. That is, bitcoin is overseen by its system, and no one focal power. Decentralization implies the system works on a client to-client (or peer-to-peer) premise. The types of mass-coordinated effort this makes conceivable are recently starting to be researched.
In addition to blockchain, one must also keep in mind the platform for such technology called Ethereum, an open-source platform to build decentralized applications that run exactly as programmed without any chance of fraud, censorship or third-party interference; we can also use the platform more and consider using it smartly.
Islamic finance can take advantage of fintech in many ways and enhance its current product offerings like Sukuk, Murabahah, Ijarah, Waqaf, Zakat, etc. Fintech can be useful in many ways, for example, in smart contracts, crowdfunding, intellectual property, renewal energy, anti-money laundering and know your customer processes, land title registration, stock exchange, etc.
By using blockchain and Ethereum, Islamic finance experts can even think about designing more innovative products that can further increase the penetration to markets beyond the current capacity, hence technology can assist capacity-building and bring product offerings to a worldwide audience.
In my opinion, Islamic finance needs to consider blockchain as a technology that can literally reduce the cost of transactions, instead of taking such differences into income use for either charity or public welfare.
As per the World Bank, there are approximately two billion adults categorized as ‘unbanked’ which is an exciting opportunity to bank them within Islamic finance through fintech.
In a nutshell, fintech is endorsing the fundamentals of Islamic finance, for example, risk-sharing, trust, transparency, justice, efficiency and equality.
Islamic finance should act fast to capture the market by using fintech to cover those territories that it has not covered before.
I would like to end my article by narrating verse 5:2 from the Quran which says: “Help one another in (the) righteousness and (the) piety, but (do) not help one another in (the) sin and (the) transgression. And fear Allah; indeed, Allah (is) severe (in) (the) punishment.”
Saleem uddin Faisal is the founder and CEO of DanOwa (DO) Group and DanOwa SofiTech (DOST). He can be contacted at firstname.lastname@example.org.